TSX:FCR.UN - Post by User
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retiredcfon Sep 04, 2024 8:55am
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Post# 36207696
RE:TD Raises Targets
RE:TD Raises TargetsTD's narrative. GLTA
ARE NAVS POISED TO GO HIGHER? INCREASING TARGET PRICES +6% ON POTENTIAL
THE TD COWEN INSIGHT
No changes to NAV estimates yet, but macro conditions are setting the stage for NAV Growth. While we are seeing more potential for cap rates to begin declining, we are awaiting evidence in the private market before making any adjustments to our estimates. In our view, the strong fundamentals being exhibited in most sectors combined with more confidence in the direction and level of interest rates should result in increased property trading activity and (assuming interest rates don't back up), lower cap rates.
In addition to NAV growth, we believe the REIT sector garnering more interest from both yield-seeking individual investors (as GICs/term deposits and money market funds become less attractive) and generalist investors could push sector valuations back to (and hopefully past) long-term averages (see our note last week here). Canadian REITs currently trade at 86% of NAV versus its 94% average since 2010.
Today we revised our target prices +6% higher (wtd. avg. index names only), now reflecting a 100% P/NAV valuation using unchanged NAV estimates.
Below and continuing on page 2 we discuss our updated target valuations and NAV outlooks for the Retail, Industrial, Residential, and Seniors Housing sectors.
Retail Focused REITs are now trading at 88% P/NAV, versus the long-term averages of 102% since Jan 2004 and 97% since Jan 2010. Our revised target prices now reflect an average 95% Target P/NAV using our current estimates, up from 89% previously. This reflects our confidence in the resiliency of leasing markets and prospects for NAV growth to become increasingly visible. With interest costs becoming far less of a headwind, we see the group delivering 4% average annual AFFO growth in 2025 and 2026, with the majority delivering 5% or better.
Since early 2022, we have taken our NAV cap rates up 71bps and our NAV/unit estimates down by 8%. With strengthened tenant demand for retail space (aided by population growth and despite the challenged consumer) leading to upward pressure on market rents and occupancy rates, we see room for retail property in Canada to gain more favour by both direct property and public REIT investors.